Motorola Says It May Post Quarterly Loss, First in 15 Years

By DAVID BARBOZA

Published: February 24, 2001

CHICAGO, Feb. 23—
Its shares already battered by a yearlong profit slide, Motorola Inc. said today that weakening demand for its products could result in the company's first quarterly loss in 15 years.

Motorola, one of the world's biggest makers of cellular telephones and semiconductors, blamed a sharp economic slowdown in the United States and widespread inventory buildup in the technology industry.

The company also said it would sharply reduce its capital spending this year and was considering closing at least four additional manufacturing plants, after shutting six or so others in the last two months.

Wall Street analysts were surprised by the announcement, which came with more than a month to go in the first quarter. They were also stunned by the extent of the revision, which could shave the company's previous $250 million profit estimate for the first quarter down to zero.

''It's a pretty big hit,'' said Greg Teets, an analyst at A. G. Edwards & Sons in St. Louis. ''It's a cost structure problem. They're built to volume, so they can't take out the costs fast enough.''

Shares of Motorola, which is based in Schaumburg, Ill., dropped another $1.04, to $16.25, on the New York Stock Exchange, slightly above their 52-week low of $15.81.

The announcement comes just weeks after Motorola closed its last domestic cell phone manufacturing plant, eliminating 4,000 jobs, and announced the closing of several other plants in an aggressive effort to rapidly lower its costs.

More cuts and job eliminations are expected because the company said that preliminary first-quarter figures showed that sales and orders were down significantly in its cellular phone and semiconductor units, making it increasingly unlikely that the company would meet its own earnings forecast of 12 cents a share on sales of $8.8 billion. The company gave no further guidance on a first-quarter profit or loss.

A year ago, in the first quarter of 2000, the company earned $449 million, or 59 cents a share. If Motorola registers a loss in the first quarter of this year, it would be the first operating loss since 1985. The company did, however, take a nearly $2 billion charge in 1998.

In a conference call with Wall Street analysts, however, Motorola executives said similar problems were plaguing other cell phone and semiconductor companies.

''We believe that this weakness is the result of current industrywide conditions and not a loss of market share,'' Robert L. Growney, the president and chief operating officer of Motorola, said of the cell phone and communications division. ''These conditions include excess inventories in the distribution channel, slowing overall market growth and some resulting increase in pricing pressures.''

The company said, however, that several other divisions, including its broadband unit, were faring much better.

Yet for Motorola, whose shares have tumbled nearly 75 percent in the last year, the news has been almost entirely bad. The company has acknowledged that its cost structure is out of line, and that it is suffering, in part, because of pricing pressure and growing demand for lower-cost cell phones and not the more expensive models it makes.

Indeed, Wall Street analysts say that Motorola, the No. 2 cell phone maker, has not been as adept at manufacturing as Nokia, the Finnish cell phone maker that is No. 1, and that it has also underperformed in the semiconductor market.

''I just visited Nokia, and there were a lot fewer people at their plants and things were a lot more automated,'' Mr. Teets at A. G. Edwards said. ''I think part of this is a management problem. Motorola has done a lot of interesting things over the years, they just haven't done it profitably.''

Scott Searle, an analyst at SG Cowen, agreed: ''Motorola's been losing share in handsets and semiconductors, and they've been struggling with profitability. Motorola was turning out too many products, and I think they were overdesigning too many products.''

Still, most analysts say that the company's competitors, like Ericsson and Texas Instruments, are also struggling with slowdowns, and that Motorola could see significant improvements in the second half of the year.

Motorola, which has reshuffled its management and restructured many of its operations, said that some new alliances, like one with Nortel Networks, one of the biggest suppliers of telecommunications equipment, and new products could lead to improvements later in the year.

For now, analysts say the already depressed shares of Motorola probably will not move much higher or lower. ''The stock is probably not going to go a lot lower in the near term; I see no catalyst,'' Mr. Searle said. ''It's probably dead for the next 90 days, until we know more.''

Photo: Daryl Demsko, center, conducted trading in Motorola stock on the New York Stock Exchange yesterday. The shares tumbled 6 percent on the company's profit warning, and are off almost 75 percent in the last year. (Associated Press)(pg. C4)